How to Claim Deduction for Gambling Losses and Pay Taxes on Winnings?

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How to Claim Deduction for Gambling Losses and Pay Taxes on Winnings?

Last Revised on December 4, 2010

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In gambling ( such as lotteries, raffles, horse racing and casinos games), there are only two things that are possible – win and lose money. Most of the gamblers are pretty disorganized by nature, for whatever reason; and thus they are prone to losing and not keeping track of their gambling records. It is important to because at the end of the year you have to file taxes, especially if you get lucky and win tons of money. You have to claim your winning money as part of your income since gambling winning or earnings are taxable. However, if you lose money you are responsible to claim the losses that way you can earn some deductions. This is not much important for IRS, what is important to them is that you document all the money you won by gambling in your tax return accurately; otherwise you may be subject to be audited.

Lets first discuss How to claim tax deduction for gambling losses? It is pretty simple, you add all the accurate amount of money in gamble and declare that lost in Schedule A section under “Other Miscellaneous Deductions” on line 27 of 1040 tax return form and fill it out thoroughly. The only complicated part is that you have to itemize that deduction when calculating. Most of the gamblers lose more money than they win. However, if they do win more money; they can’t claim or deduct more than winning amount. It has to be either equal or less than the sum prize. Therefore, gambling losses are not subject to 2 percent limit, where only the extent of gambling winnings that exceed 2 percent of your adjusted gross income are deductible. And always be ready to be able to provide the proof of losses, which could include but not limited to log detailing the date of wagers, the location, amount bet, and the type of gaming, receipts; tickets, statements, invoices, check copies, etc. And you can’t include the expenses associated with gambling such as transportation and communication costs. Although IRS consider gamble winnings as income, the expenses are considered personal outlays unless you are a professional gamblers. The professional gamblers, like those that play in tournament to earn a living, can call gambling as a business in their taxes. So when they have out-of-pocket expenses we discussed above, they can add them under the Schedule C. This pretty much cover everything to know about how reduce your taxes with gambling losses. They call them earnings instead of winnings.

You must enter gambling winnings to be able to deduct gambling losses. So now lets move on to answer the question How Do I Pay Taxes on Gambling Winnings? I am glad you are willing to pay taxes, especially from gambles which is taxable. A lot of people assume IRS can’t catch them unless they win like a million dollar lottery prize. IRS is automatically notified by the payer whenever a gambler wins $600 or more (and that amount is 300 times your bet) at a horse track, win $1,200 at a slot machine or bingo game, or take $1,500-plus in keno winnings and $5000 at the poker tournament. This is why they get your Social Security number because it is an extra income. If you win a non-cash prize, such as a car or a trip, you will be responsible for the taxes on the fair market value of the item or items (if the value exceeds $5,000). In return for giving that information, the payer will later send you Form w-2g. It is similar to w-2 form, except w2g form will include what you won for that short time along with taxes you paid and withheld. You will find a space to fill these information in Line 21 of 1040 form. However, regardless of the amount of winnings, W2-Gs are not required for earnings from table games such as blackjack, craps, pai gow, baccarat and roulette. When you are ready to send your federal tax return, attach that w-2g form with it. When reporting the winnings, you cannot use for 1040EZ since you have to itemize the earnings and losses from gambles.

The best idea is to keep record of all the gambling transaction so that you can file pay taxes on your taxable gambling income, claim deduction on the losses and not get audited by IRS officers.

How much tax IRS charges for cash prizes? No matter what state you live in, the taxes IRS will charge you on cash prizes will depend on which tax bracket you fall into and whether or not the they deducted the taxes when you won during the contest. Usually these prizes are counted as unearned income and thus taxed along with your normal income, at 15% which is what most average people tax bracket.

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42 Responses to “How to Claim Deduction for Gambling Losses and Pay Taxes on Winnings?”

invaderg35 Says:
November 29th, 2011 at 10:53 pm

Let’s say I make $40K a year and this year I have $18K worth of slot winnings. I’ve lost a bunch and didn’t use my players card everytime I’ve played because I was worried it caused me to lose. I’m not sure what the players card will say I have in winnings. The winnings seem like a lot because I play $5 slots and I have a few that are $1500, two that are $2000, and one that I won was $9000. Playing $5 slots is easy to lose. I have some ATM withdraws from the casino, but those only show $400 each. But in those days before I go to the ATM I have dropped $500 to $600 in cash before I hit the ATM. Anyways without that what would a typical person making $40K a year with $18K in winnings have to pay in taxes?

taxes on winnings Says:
January 4th, 2012 at 9:05 pm

if you win forty thousand at casino an your losses cover my winnings..i had taxes taken out when I won do i get my some of my taxes back that i paid on my winnings

taxes on winnings Says:
January 4th, 2012 at 9:07 pm

i won forty thousand at casino an had taxes taken out an also have proof of losses of forty thouand dollars..do i get the taxes back i paid since my losses covered my winnings

net loss win statement Says:
January 22nd, 2012 at 11:17 pm

In 2009 my win/loss statement was net loss 11,000.00 and win 92,000.00 I did not declare gambling monies because I thought the net loss overrode the win. Now I am being told that I owe almost 20,000.00 in taxes. Is this right?

Gypsy7283 Says:
January 27th, 2012 at 9:55 pm

I won $700 on a 50/50 raffle at a hockey game will they send me a w2g form or am I able to claim in on my taxes without a w2g form???

I am not sure if you winning needs to be reported while file taxes because according to the IRS following gambling earnings are considered reportable incomes for w-2g forms:

The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine,

The winnings (reduced by the wager) are $1,500 or more from a keno game,

The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament,

The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:

$600 or more, and At least 300 times the amount of the wager, or

The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).

clairecpa Says:
March 17th, 2012 at 4:45 pm

The answers for IRS reporting have been given:

1) W2-G Winnings are reported as ‘Other Income’ on Line 21 of Form 1040.

2) Gambling Losses are reported on Schedule A, Line 28, Other Miscellaneous Deductions (this line is NOT subject to the 2% limitation), BUT
YOU CAN DEDUCT NO MORE THAN THE AMOUNT OF WINNINGS YOU REPORT IN INCOME (the amount you put on Line 21 of your 1040). So, if you won $15,000 and lost $75,000 doing it, it’s too bad & too sad, you can report only $15,000 as your deduction on Schedule A.

Losses need to be substantiated. You can’t just make up a number or use a percentage.

IRS will be happy to estimate your taxable income if necessary, but you have to prove your deductible expenses.

Jim Says:
April 7th, 2012 at 11:11 am

If I win a car or cash prize in a drawing at a casino for which I earn entries by playing slot machines, can I count other gambling losses against that prize? The casino issues a W2-G for winnings on slot machines, but a 1099-MISC for the prize winning. If the prize is considered miscellaneous income rather than gambling winnings, do I have to report it separately from gambling winnings and, therefore, can’t deduct an equivalent amount of gambling losses.

Ed Says:
April 10th, 2012 at 10:24 am

I have looked all over the web and done many searches and still confused. I have lost around 30k this year and have NEVER won before. So if I haven’t won anything (according to all the articles and information I read) does that mean I can’t claim my losses cause I have no winnings to report? PLEASE HELP!! Thanks for your help in advance.

Unfortunately, I believe that’s the case right now as IRS states Gambling losses are indeed tax deductible, but only to the extent of your winnings. IRS doesn’t allow to write in gambling losses only. You cannot just deduct your losses without reporting any winnings. If the IRS allowed this, then it’s essentially subsidizing taxpayer gambling. The bottom line is that losing money at a casino or the race track does not by itself reduce your tax bill. You need to first owe tax on winnings before a loss deduction is available. Therefore, at best, deducting your losses allows you to avoid paying tax on your winnings, but nothing more..

MaryW826 Says:
November 29th, 2013 at 6:43 pm

I won $9000 on 50/50, how much tax would I have to pay on it. I also have over $3200 in scratch off losses. How does that work for deductions? We will have made $60,000 this year. We haven’t claimed itemized deductions in a few years!!.

MSGIRL Says:
March 11th, 2014 at 11:29 am

Recently had my win/loss statement of -15,127.75 and total winning of 14,000. do i still owe taxes? some of them had fed and state taken out already and 4 are not?? so do i still need to pay taxes?? thanks in advance

vinny Says:
March 27th, 2016 at 11:25 am

IRS if so unfair. Lost about 5k last year with no winnings……I’m in the $20k-$25k income bracket. IRS can take taxes from my winnings…..but I get no credit for no wins and all losses?…..I still have to pay taxes on my income eventhough I lost 5-6k last year? Gov’t is so one sided.

Losses Says:
August 20th, 2016 at 1:34 pm

soon. I won 500,000 this year and they taxed me at 25% roughly $125,000>> So I received $375,000. I have lost over $225,000 this year. I won in January of this year and I have been unemployed all year. Do you think I will owe anymore taxes? My CPA said with those losses I should get some money back on my taxes. Does this happen?